Finance Factors delays bank vote again

A group of shareholders wants to be bought out before it becomes a bank

A disagreement over direction prompted shareholders of Finance Factors' parent company yesterday to delay a vote for a second time on a proposal to convert the financial-services loan company into a state-chartered bank.

The vote was pushed back so that Finance Enterprises Ltd.'s management can enter into mediation with a minority group of shareholders represented by Steve Jones and Wes Chang, who want their holdings bought out before the proposed changes. The parties agreed to select former Judge Patrick Yim as mediator.

"We are hopeful we can resolve this issue in a timely fashion and obtain approval from our shareholders on the planned reorganization and charter change," Finance Factors said in a statement.

Finance Factors, which has been exploring a bank conversion since 2003, has turned around its fortunes since the Federal Deposit Insurance Corp. and the state Division of Financial Institutions issued cease-and-desist orders in 2000 after an FDIC audit turned up problems in the company's lending practices.

The cease-and-desist orders were lifted in 2001 after Finance Factors appointed new outside board members, improved its internal loan policies, increased its reserves and decreased its share of bad loans.

"Our current executive management team is the same team that successfully led the survival of Finance Factors from the economic downturn and regulatory concerns of the 1990s to its current position as the last remaining depository financial services loan company in Hawaii," Finance Factors said.

Finance Factors said its $56 million in capital is more than twice the amount required by the FDIC for an institution its size and that its capital ratio of 9 percent exceeds the minimum required capital for a bank of 4 percent of total assets. That means for every $100 million in total assets, a bank needs to have $4 million in capital.

The institution said it wants to make the change because its charter is outdated and limits the banking services it can offer.

"We are not converting to a 'full-service' bank that replicates what other banks offer," Finance Factors said. "Instead, Finance Factors will continue to focus on real estate lending, both residential and commercial."

Finance Factors also said the new bank charter -- in which its name would be changed to Finance Factors Bank -- would give it a better opportunity to acquire new customers and retain existing customers by offering more products and services.

The company, headed by Chief Executive Russell Lau, ended 2005 with $652.7 million in total assets, $484.3 million in deposits and $395.1 million in loans.